Chicago: Hotbed of Competitive Marketing7/18/1999 8:00 PM Eastern
If you think overbuilding is off cable's radar screen in
these heady days of consolidation, look no further than Chicago, the nation's
third-largest TV market and site of the cable industry's most recent national convention.
Despite entrenched cable dominance by AT&T Broadband
& Internet Services and Prime Cable -- with about 210,000 and 138,000 customers,
respectively, in Chicago's five franchise areas -- Baby Bell Ameritech Corp. and upstart
21st Century Telecom Group Inc. are demanding, and getting, pieces of the action.
Ameritech, under its Ameritech New Media banner for
cable-system management, was recently awarded its 107th franchise in the Midwest. It will
probably be among the top 30 MSOs in the country next year, with more than 200,000
subscribers spread throughout the Chicago; Cleveland and Columbus, Ohio; and Detroit
And 21st Century, which has already poured $250 million
into one Chicago cable-franchise area, has applications with the city's cable
administrative agency to wire up to three more areas, putting it in a position to pass as
many as 570,000 additional households.
However, the two companies -- which eschew the traditional
idea of a system general manager as a local figurehead, and which insist that they're
really convergence players, and not overbuilders -- refused to detail how many Chicago
cable subscribers they actually have.
ANM will only release a rounded subscriber count of
approximately 200,000 for its entire universe, while 21st Century admitted to about 23,000
households for its high-speed Internet-access or telephone services, individually or in
"If I give out cable numbers, people then want to know
where the subscribers are, or how many are in multidwelling units as opposed to single
homes, and ultimately, that's not the point," 21st Century president and CEO Robert
"The success story is ultimately about bundling
services, how many of those subs I sell and how I do against churn," he added.
"It's a totally different set of metrics than traditional cable. Reporting numbers
against that set of metrics is fine because we don't think of ourselves as cable
overbuilders: We think of ourselves as a convergence play."
"We have no obligation to reveal our progress to our
competitors," ANM vice president of public affairs Donna Garofano said, "where
we're building them out neighborhood by neighborhood. The bigger issue is achieving
credibility with our customers by meeting their demand for information, entertainment and
service variety. In comparison, this is an ancillary issue."
Since turning its Chicago service on in December, ANM's
120-channel-capacity system passes more than 185,000 homes in the city's south and
southwest districts. Its "Americast" lineup contains 62 basic and expanded-basic
channels, 11 premium services and 11 "Express Cinema" branded movie and event
There's also a collection of text/graphics-configured local
information services, Americast's own interactive-programming-guide channel and four
channels not offered by AT&T Broadband's system -- Turner Classic Movies, Toon Disney,
BET Movies/Starz!3 and Sundance Channel.
Considering that the Chicago government approved the
company's franchise contract last July 31 and construction started 45 days later, Garofano
said, ANM's growth has been remarkable.
Former ANM president Deborah Lenart, one of the few women
at an MSO's helm, quietly stepped aside six months ago to return to the parent regional
Bell operating company in a marketing role.
Her job has been filled by Ali Shadman, who was operations
vice president for the unit until another internal shift two years ago, which made him
Ameritech's corporate-strategy vice president.
Although he's familiar with ANM's cable business, Shadman
has kept a low media profile compared with Lenart.
The system's general manager is responsible for technical
operations only. Marketing, ad-sales and customer-service personnel take their marching
orders from Ameritech's headquarters, as do employees with similar roles in the company's
other metro markets. That way, ANM gets operating scale and efficiencies.
"Because we're building so much so quickly in four
areas simultaneously, the system works well," Garofano said. "If it needs to
change at some point, it will."
Community newspapers and direct mail are ANM's main
marketing vehicles at this juncture. In some cases, community-news ads include promotions
for local park associations and other institutions.
Outreach activities help to get out the word on company
offerings, such as a charity road race, fund-raising for community groups working with
disabled adults and a BET on Jazz-sponsored concert. ANM's current direct-mail campaign
offers up to $100 in free groceries from Giant Eagle Inc. supermarkets when subscribers
sign up for premium channels or combos.
One marketing tactic that ANM didn't use in Chicago, but
that it did use in some suburban areas last year, raised the ire of cable operators
Under the "AmeriChecks" drive, new cable
subscribers received up to $125 in vouchers to help pay for their cable or, if they
wished, for local phone or paging services from Ameritech.
The Cable Television & Communications Association of
Illinois protested the campaign, declaring it an example of cross-subsidization in
violation of the state's Public Utilities Act. The group filed a complaint with the
Illinois Commerce Commission to terminate AmeriChecks.
The commission ruled on the matter earlier this month,
finding the campaign not in violation with the PUA. But Ameritech brought AmeriChecks to
an end at the start of 1999, saying that the effort had run its course.
ANM's 120-channel capacity means no rush to push into
digital-cable services. Interactive services are under consideration, with a number of
vendor and service-provider discussions going on. Audience surveys showed some appetite
for home shopping but little support for anything else.
High-speed Internet access is under study, as well. ANM has
issued a request for proposals to several cable-modem and content vendors, and it will
wait for consumer demand to heat up further before setting an agenda on that front.
"There's a big difference between awareness of things
like high-speed access and interactivity and demand for them," Garofano said.
"There's a lot of word-of-mouth, but that hasn't translated into demand."
She continued, "At [the National Show], you see new
products everywhere. That doesn't mean you're smart if you're first in line to buy them.
When demand grows and we're confident that the products and services are available in a
cost-effective manner, we'll offer them."
With that answer, you can take as a given that ANM will be
around when its Baby Bell parent merges in the near future with fellow Baby Bell SBC
Communications Inc. As the merger nears, there's been speculation that SBC would,
postmerger, do away with the cable operation, given the reportedly anti-video attitude of
SBC chairman Ed Whitacre.
After all, if SBC didn't want cable in its future, why did
it let ANM win more than 30 franchise agreements since the merger announcement more than
one year ago? "They've given us no indication that they want us to slow down or
stop," Garofano said. "And we won't."
ANM expects to complete its Chicago build within three
years; company officials said construction plans are ahead of schedule.
21ST CENTURY BUNDLE
21st Century is gearing up to launch service to 20,000
homes in Skokie, Ill., outside of Chicago, with a second system covering about 12,000
homes in Northbrook, Ill., another Chicago suburb ready to go later this summer.
Down the road, Currey anticipated taking up stakes in
markets outside of Illinois, and more than a few community representatives have inquired
about getting the company in their backyards.
But the company's full attention for now is on its Area-One
Chicago system, which will ultimately pass more than 350,000 homes. More than 120,000
homes are already passed, and Currey expects a wrap on construction one year ahead of the
From the start, 21st Century has tailored its image to
convergence. "I don't think about what we do the way MSOs have thought
traditionally," Currey said. "We're a bundler of services over a broadband
He added, "Over time, the rules of engagement will be
redefined from one medium [video] to a multimedia industry. The world is rapidly moving in
that direction, where one-stop shops offer all sorts of facilities-based voice, video and
Internet products, and customers get savings and convenience. It's exciting when people of
AT&T [Corp.'s] and Microsoft [Corp.'s] caliber identify the market and set those rules
of engagement. It validates our strategy."
It's one thing to validate strategy but another to execute
it, given AT&T Broadband's new role as direct competition to 21st Century.
Currey added, "I would have preferred going against
TCI's [Tele-Communications Inc.] reputation. However, [AT&T chairman C. Michael]
Armstrong has a much broader vision, and he needs multiple revenue streams -- given the
prices that he's paid for TCI -- to fulfill it. He'll have his hands full meshing cultures
together. Good luck."
But if Chicago's City Council comes through, Currey will
get his shot at AT&T Broadband. The council will determine if 21st Century has the
ability to extend its service into areas two, three and four. AT&T Broadband has area
four, while Prime controls the others.
Meanwhile, Currey is trying to entice households to sign up
for 21st Century's 110-channel service, powered at 750 megahertz. The lineup includes
ZDTV, ESPN Classic, MuchMusic USA, various Home Box Office and Showtime multiplex nets and
Convenience Channel Network, an independently produced interactive guide to local dining,
events and culture.
The big news at the system, however, is bundled offers.
Under the tag line, "The Sooner, The Better," 21st Century provides high-speed
Internet access and telephony, using a centralized sales force to market all three.
High-speed access was launched this month. Telephone
service -- including caller ID and customized lines -- started June 1.
Subscribers to 21st Century's local phone service pay a
monthly rate that company officials labeled as 15 percent less than Ameritech's. If they
add cable, Internet access or long-distance telephony, the rate goes down another 5
percent. A household taking everything gets 30 percent off the rate.
Once 21st Century's cable overbuild is finished, Currey
hopes that up to 10 percent of those customers will be bundle customers.
Digital and interactive services are in the cards, he said,
adding that he sees his company running an all-digital cable system in Chicago -- and
anywhere beyond -- very early in the new millennium.
"Our network is ready for a move up to 860 MHz or 1
gigahertz if we need the room," Currey said. "But all-digital systems will
absolutely happen sooner -- much sooner -- than later. And it will attract new and
different users and usage than we have today."
Simon Applebaum is senior editor of Cablevision
magazine, a sister publication to Multichannel News.